Small Business, Enterprise and Employment Bill

Greg Mulholland Excerpts

Wednesday 16th July 2014 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Thank you, Madam Deputy Speaker. The Secretary of State described his 50-minute speech as “Castroesque”, whereas I shall describe my five-minute speech as highly castrated. But, in the limited time available, I wish to concentrate on an issue that has long exercised the Select Committee on Business, Innovation and Skills and its predecessors: pub companies and their regulation. Let me say to the Minister that although I may appear critical, I recognise that, having wavered and gone down the voluntary route, he has tried to rescue this and put regulation on the statute book. That has long been the position of the Committee, but grave flaws remain with the proposals before us.

The Shadow Minister outlined the problems of low incomes among tenants and mentioned the attrition rate of 28 pubs being closed every week. Our basic model of tenant and pub company is not viable and is in long-term decline. Worse still, the low incomes of tenants mean that many have to resort to state benefits to prop up their income. Under the current model, the pub companies take substantial profits from an unfair relationship with the tenants; the number of pubs is declining, with a consequent impact on the community; and many pubs that do survive have tenants on low incomes, which generates personal problems and the taxpayer liability. So that issue needs to be addressed.

Having the statutory code and adjudicator, which the Government are supporting, is a step forward, but it does not address the issue of the free-of-tie option. The Minister said that the Government were not going to introduce that because of the potential impact on the pub industry. It is difficult to see how, in the long term, we are going to affect the balance of risk and reward between the pub companies and the tenants without introducing a mechanism that will strengthen the hand of the pub tenants. The proposals for parallel rent assessments, which would enable the tenant, in certain circumstances, to apply to have a rent assessment, suffer from a number of difficulties, not least that it has to be after a five-year review or after protracted negotiations have failed. In some cases, they can last two or three years and drive the tenant into bankruptcy long before they reach the assessment point. It is difficult to say how such a time-consuming and complex procedure can substantially alter this balance of risk and reward. Indeed, under the existing system there is a voluntary arrangement whereby tenants can go to an adjudicator and, although that has addressed certain problems, it certainly has not changed the overall balance of risk and reward in the industry.

The argument against that is that pub companies will abandon their tied tenants and become real estate investment trusts and that others may step in and try to reproduce the model to the detriment of the existing variety of agreements and range of beers. That is a hollow threat, because under real estate investment trust legislation, 95% of rental income must go to shareholders, which would render that impossible for pub companies, and 75% of income must come from rents, which would also be a barrier. Therefore, the threat of an alternative model is hollow.

[Greg Mulholland (Leeds North West) (LD)]

I pay tribute to the hon. Gentleman’s work and the fantastic work of the Select Committee on Business, Innovation and Skills over the years, including the four crucial reports that have finally led us to legislation. Does he share my bewilderment that the Government did not listen properly to the Business, Innovation and Skills Committee and have not introduced the market-rent-only option that he proposed? A clear two thirds—67%—of all respondents to the Government’s consultation said that it was the right way to deal with the problem.

[Mr Bailey]

I thank the hon. Gentleman for his intervention and pay tribute to his contribution to the ongoing political pressure. I do find it mystifying; at the end of the day, the Government have fudged the issue and have bought some of the pub companies’ arguments. They are being more protective of pub companies than of tenants, which is to the potential detriment of the industry.

The free-of-tie option would lead to considerable changes in the industry, but such changes would be difficult to quantify. The survey by the Federation of Small Businesses found that 75% of tied tenants would take on more staff and increase staff hours, 78% would increase investment, 73% would invest in modernisation and 91% would deal with microbreweries. It therefore seems that the alternative model has the potential to strengthen the industry while the present proposals will only lock it into a long-term, terminal decline.

--- Later in debate ---

[Greg Mulholland (Leeds North West) (LD)]

In the limited time available to me, I shall, as chair of the all-party save the pub group, restrict my comments to the pubs section of the Bill. That is not to say that there are not many excellent measures in the Bill, but I want to concentrate on those relating to pubs. I am sorry that the Secretary of State is no longer in his place, as I wanted to put on the record my thanks to him for listening, doing what was clearly needed and legislating to deal with the flawed and discredited business model that has done so much damage to the valued institution of the great British pub.

I have said very vocally that BIS and the Government got it badly wrong in 2011 when they decided to go down the self-regulatory route yet again, even though it had clearly failed, as was shown by the Select Committee. I give every credit to my right hon. Friend and to Ministers for looking at the issue again, listening, acknowledging that the problems were still there and in many cases getting worse, and finally acting. I pay tribute to my colleagues in the all-party group and to the Fair Deal for your Local campaign, which was formed in April last year, bringing together the Federation of Small Businesses, the Forum for Private Business, the Guild of Master Victuallers, the GMB, Fair Pint, the Pubs Advisory Service, Licensees Supporting Licensees, Justice for Licensees, the Campaign for Real Ale, and Licensees Unite, part of Unite the union, which represents more than 2 million members and many, many licensees up and down the country as a strong voice for the pub sector.

We in the campaign and the all-party save the pub group warmly welcome the fact that we will have legislation; that we will finally have a statutory code of practice. I and the two vice-chairs of the all-party group have written to the Secretary of State—which is a good job because I will not get the chance to outline my position in the limited time available now—to make clear the Bill’s flaws as we see them.

First, there is no apparent mechanism by which the Government will deliver their clear commitments to fair and lawful dealing and—crucially, to pubs in companies that have 500 pubs or more—to a tied licensee not being worse off than a free-of-tie licensee. It is not clear how the parallel rent assessment can do that or how the adjudicator would enforce that.

Secondly, it is a huge flaw that the enhanced code will apply to companies with 500 tied pubs. That makes no sense at all. This is about market share, as with the beer orders. As we have said clearly and consistently, it must apply to companies with 500 pubs or more of any kind, but within that it must apply only to leased and tenanted or franchised pubs, not tied pubs. That is crucial; otherwise, as we have seen, the large pub companies will simply put people on free-of-tie agreements, or so-called free-of-tie pricing, and put their rent through the roof, even further above market level. Clearly, that will take more money, and the problem will not be solved.

[Toby Perkins (Chesterfield) (Lab)]

I add my congratulations to the hon. Gentleman on the work that he has done on this issue. Does he agree that in some ways what is proposed misses the mark, because not only does it expect too much of the small family brewers, for which we have such high regard, but it expects too little of the pub companies that many of us have considerable concerns about?

[Greg Mulholland]

The Fair Deal for your Local campaign clearly campaigned for a statutory code to include the all-important market rent only option—the Select Committee solution—for companies with 500 pubs or more. We did not envisage or call for a code for companies smaller than that. It is interesting that we have ended up here because the so-called British Beer and Pub Association, which is the mouthpiece for the pubcos, decided that it was a clever tactic to try to deflect any legislation by saying, “Oh no, we mustn’t have a two-tier system,” which has backfired terribly. Once again, the BBPA has badly let down the family brewers, who should seriously consider whether to continue to remain part of an organisation that lets them down and is increasingly discredited.

[Caroline Nokes (Romsey and Southampton North) (Con)]

rose—

[Greg Mulholland]

I give way to the vice-chair of the all-party save the pub group.

[Caroline Nokes]

Does my hon. Friend agree that some of the pessimism that we have heard about the market rent only option is unwarranted in the case of family brewers?

[Greg Mulholland]

Of course, the market rent only option would not apply to family brewers. They would be excluded even in the current proposals, because the enhanced code is only for companies with more pubs. But a lot of myths have been circulated and there is a lot of scaremongering. The all-party group has done a good job with other campaign groups in debunking that. We were told that free houses used to close in greater numbers than pubs—absolute nonsense, and we have proved that. We are now being told that somehow this would close breweries. That is complete and utter scaremongering. It is nonsense. Only 14% of Marston’s revenue is even from its tied estate. It makes huge amounts of money—I am glad to say—from selling its beer to supermarkets and to the free trade from its managed pubs. It is scaremongering without evidence, and the Government must deal with that. It is also why the Treasury must finally answer the freedom of information request and tell us what evidence it has been sent. There is no credible evidence to back up the claims of the BBPA and the big pub companies, which are simply trying to defend the indefensible and to prop up what has been a disastrous business model, which made a few people very rich and has destroyed pubs, and is continuing to make perfectly viable pubs close because of the huge debts they are paying.

In the limited time that I have I must challenge the Minister. This will be a conversation that will be had between now and Committee stage when it will be explored. As set out, the adjudicator will deal with breaches of the code, yet the fundamental problem is that the pub companies are taking too much in the form of excessive tie prices and inflated rents from pubs. How will the adjudicator deal with that? How will the parallel rent assessment deliver that? The adjudicator must have the power to impose a new, fair tied rent. That is the only way in which the Government will be able to deliver their commitment, but it is not clear that the adjudicator will have that power.

Also, I can see no specification of the level of fines. The only arrangement that would make any sense would be one that enabled the adjudicator to say, “Yes, you have been considerably overcharged for this period, and the fine will be set at a level that will allow the pub-owning company to pay you back the entire amount by which you were overcharged through unfairly tied prices and excessive rents.”

The Government have not explained why they have not adopted the simple solution. Their current plans will result in a huge work load for the adjudicator, but there is a simple solution. It was put forward by the Select Committee and backed by 10 organisations including the Federation of Small Businesses and the Forum of Private Business, and it is now time to look seriously at improving the situation with a market rent only option.

--- Later in debate ---

[Greg Mulholland]

My hon. Friend forgot to mention in his long list of titles his elevation earlier this year to president of the save the pub group. It has been a pleasure working with him. As well as the figures he has—

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order. Sit down. We are really pressed for time and Members need to be disciplined. We did not need the introductory remarks, so you have lost the opportunity to make your point. I call Brian Binley.